Good day ladies and gentlemen and welcome to the Aerohive Networks’ First Quarter 2015 Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Ms. Sophie Pierson. Please go ahead maám.

Thank you, operator. Welcome to Aerohive Networks’ first quarter 2015 financial results conference call. After the market closed today, Aerohive issued a press release through Business Wire. The release is also available on our website at aerohive.com. This call is being webcast live on the Investor Relations site of the Aerohive website and will be available for 30 days. Today’s call is being hosted by David Flynn, President and Chief Executive Officer and Gordon Brooks, Chief Financial Officer. David Greene, Chief Marketing Officer, will also be available for Q&A. During this conference call, we will make forward-looking statements regarding future events or results of the company and its operations. These forward-looking statements include statements regarding our projected financial results, general demand for mobile and wireless networking in the industry verticals we target, demand for our products and solutions in particular and our ability to take advantage of opportunities in the industry verticals we target, potential drivers of growth in our business, new customer acquisition and continued adoption of our products and solutions by existing customers, future product and service offerings, continued 802.11ac transition and adoption of Aerohive cloud management applications and product offerings, fluctuations in our gross margins, seasonality of our business, changing market conditions, the timing and potential level of our participation in the E-Rate program and our expected benefits and investments related thereto, our plans of future investments, our expectations regarding our level of operating expenses, progress in our sales execution strategy particularly in our underdeveloped territories. Risks associated with the deployment and adoption of new products and services. Risks associated with our continued growth and competitive pressures from existing and new companies. The actual outcomes and results may differ materially from these contemplated by these forward-looking statements as a result of these uncertainties, risks and changes in circumstances that could affect Aerohive financial and operating results. Including risks and uncertainties included under the captions Risks factors and management discussion and analysis of financial conditions and results of operations, and the company’s recent annual report on Form 10-K. Aerohive’s SEC filings are available on the investor relations section of the company’s website at https://ir.aerohive.com and on the SEC’s website at www.sec.gov. All forward-looking statements in this press release are based on information available to the company as of the date hereof and Aerohive Networks disclaims any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made except as required by law. Today, we will be discussing both GAAP and non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures and a discussion of why we present non-GAAP financial measures, please see today’s press release available on our website. And now, I will turn the call over to David Flynn, President and CEO of Aerohive.

Thank you, Sophie. Thank you all for joining us today. Our first quarter of 2015 revenue of 25.8 million was within the revised guidance range we provide on April 13th, a decrease of 9% as compared with Q1 of last year. While we had solid performance in international markets, the strength was offset by weakness in North American sales primarily due to the larger than expected effective E-rate into continued sales execution issues. Are going to more detail later in the call. Despite these results I am very encouraged by recent developments including our new sales leader, updated channel program, anticipated E-rate business, our recently announced Resell thing with Dell, and important product announcements. I remain optimistic about our ability to capture additional business in the future and will go into more detail on these later on the call. Let me now review some of the key results from the quarter. We added over 1300 new end customers in the first quarter bringing the total number of end customers to over 20,000. We also saw a continued expansion from our existing base with repeat customers contributing 67% of our business over the last four quarters. We continue to have diversification into key verticals during the quarter, let me share a few examples. We closed the seven figure deal with one of the largest financial institutions in the UK. They expanded upon their existing head quarters Wi-Fi deployment to deliver a unified cloud managed networking solution to 700 branch locations that includes our Wi-Fi switching and branch router solutions. Our ID manager application is an essential element of deployment easily allowing them to manage guests and also distribute unique access keys to enable a BYOD program that is expected to exceed 20,000 users. In addition we continue to make very good…

Thank you Dave and good afternoon. As Dave noted we were disappointed in our revenue performance in Q1 primarily driven by the even larger than expected U.S. K-12 due to the various aspects of the federal E-rate program. In addition we experienced an operational challenge late in Q1 with our third party logistics provider and we are not able to ship and take revenue in the quarter on all the orders that we had received and processed. We believe that we have addressed this particular operational issue that gave rise to the circumstances. We had solid performance against our other key revenue significantly impacting our bottom line. I will review our GAAP and non-GAAP P&L, balance sheet and cash flow metrics for Q1 and provide some related commentary on the business. Lastly I will close by providing financial guidance for Q2 of fiscal year 2015. Net revenue for Q1 was $25.8 million, a decrease of 9% compared with the same quarter a year ago. Product revenue for Q1 was $20.5 million, a decrease of 18% compared with the same quarter a year ago. The vast majority of our product revenue continues to be driven by our access points and our related management software licenses. Software subscription and services revenue was $5.3 million for Q1 or 21% of revenue, an increase of 58% compared with the same quarter a year ago and 6% increase sequentially. As our software subscription and services revenue amortizes off of the balance sheet, we expect to continue to see sequential quarterly increases in this revenue line over the near-term and do not reflect the same seasonality we expect to see with product revenue. On a geographic basis in Q1, net revenue in the Americas was $14.1 million or 55% of total revenue. Americas net revenue decreased…

Thank you. [Operator Instructions]. And we’ll take our first question from Kent Schofield with Goldman Sachs.

Great, thank you. First off wanted to clarify the impact around the logistics issues that you saw in Q1, if you could put a dollar amount on that I think that would be helpful to help us understand the impact that you are expecting on the 2Q guidance, that’s my first question?

Yeah we build the impact back into the Q2 guidance which we believe gave us better visibility as to why we brought the bottom under the range up. But Kent because we don’t perform revenues procedures on items that didn’t ship, I don’t have a specific number to show you as an impact here for the quarter. But we did list that in the press release as the second item impact in Q1 overall. So that gave you a relative strength of the impact for the quarter, but I don’t have a specific amount because we didn’t go ahead and provide the revenue procedures on that.

Okay, got it. So maybe back then probably to what’s the first item if look at the press release around E-rate, I appreciate all the detail you guys gave but one of the things I am having trouble kind of I guess mashing in my mind is that you talked about kind of normal 2Q seasonality as one of the reasons for the Q-on-Q growth, that you are expecting in the second quarter. But then you also talked about how it sounds like E-rate is more of a second half impact, so can you just help us understand kind of what sort of actual E-rate revenues are you expecting in 2Q, what’s kind of your assumptions to get to that Q-on-Q growth?

Kent, so what we’ve done is we’ve been engaging with the customers that have named us in their 471 filings. And then talking about which ones are prepared to spend and purchase ahead of receiving their funding letter and ahead of the July 1st date where they could actually receive funding. And there are number of customers that are prepared to purchase what they call the bare process where they buy and get reimbursed. And so some of those customers have indicated that and we’ve reflected that in the guidance. But the majority of customers are indicating they want to wait and get the letter in their hand and be able to receive the funding which will put the majority of the revenue in Q3 and beyond.

Got it, that’s helpful, does that mean is there any way to help us think about I mean are we taking low millions of dollars, I mean is there any way to put some sort of frame on it to help us understand that Q-on-Q growth in 2Q?

Well I think how we have looked at it is that we over the last several years we have had a sequential step up that has been significant between Q1 and Q2. You will notice in our guidance that sequential step up in product revenue is not quite as high as it has been. So, we believe that that’s been tempered by the fact things being pushed out. So I think the best way to quantify it is looking at that change in the sequential growth versus what we traditionally done between Q1 and Q2.

Okay, thank you gentlemen. I’ll jump back in the queue.

Thank you. Our next question will come from Troy Jensen with Pipe Jaffray.

Yes, thanks for taking my question gentlemen. Maybe David here if you someone asked too much on K-12 here but if you look at your pipeline now versus the pipeline a year ago do you think you can quantify how much larger it is now than it was back then.

Troy we have not been commenting and giving guidance on what the future pipeline looks like. So that’s the disclosure we haven’t been making. If you look at the numbers from funds for linear reports and those things you can see there is obviously a healthy -- is a very healthy number of 471s awarded and we hope those will turn into pipeline going forward so.

Alright and I know this material, probably had to quantify but just curious so, David well I got you and I got a follow up here for Gordy but anything you can help with the timing and kind of magnitude of the Dell opportunity and in my knowledge it’s just cloud services. You know they are still in the market for a hardware partner?

To be clear so our hardware and our cloud offering I think that they felt they had a gap in their offering around cloud managed Wi-Fi solutions and that we had a very strong offering that was they wanted to add to their portfolio so it is all of our access points as well as our cloud services. The cloud managed solution is the focus of the relationship although all the products are actually part of the relationship, it’s not limited to those but that’s the primary focus. At this point too early to say how quickly it will turn into revenue and how much revenue after it got a very large organization, a large sales force and we are excited about the potential for it. But we are just in the midst of training hundreds of sales rep that we have to go out and train and introduce to the company and focused on that over the next quarter and looking forward to the potential for the relationship over the following quarters.

Great, understood. And then Gordy one for you here, any thoughts on business model targets you know a timeline for breakeven or maybe against the revenue level that you need to hit to reach your breakeven number?

Yes I think we still feel that the kind of long-term model that we have asserted is still in place if you look at the cost structure and we have talked about those element of the long term model trying to get to a 20% operating margin really in the mid to high 40 million per quarter of revenue. And if you again if we break down the absolute dollar amount of where each of the cost structure items are we still think that we are on that same track. We haven’t given a timeframe for that overall but really the defining moniker we had given as a quarterly revenue amount at which we believe we can achieve those targets.

Great, understood, good luck gentlemen.

Thanks Troy.

And our next question will come from John Lucia with JMP Securities.

Hey guys, thanks for taking my questions. My first question is around E-rate. Last year I believe over half of the funding commitments were approved on July 1st, is that your expectation for this year and if that were to happen would you expect most of the schools to purchase in the summer timeframe, is that kind of what they are targeting?

Yes, so I think I wouldn’t be prepared to speculate on how quickly those funding commitment letters are going to get out. We’ve heard various takes about window start. We expect them to actually start flowing in Q2 and they have made a stated goal nearly a commitment to have them all out buy September 1st. But whether they happen July 1st or August 1st is kind to be determined and based on our government agencies execution which has probably got some variability around it. We would expect the schools to try to spend in the summer if possible to go do their deployments but the magnitude of the deployments would have to happen will put a strain on the reseller community's ability to go deploy and do the cable pulling. And so I don’t think everyone will just buy everything in Q3. We expect the deployments to be staggered over a number of quarters just based on how long it takes to roll out and implement this. But probably front-end loaded to the extent possible to get deployments done in the summer timeframe.

Okay, that is helpful and then I had one question about Tom Wilburn, you said he is already making changes to improve sales execution, what has he done, has he hired new sales reps, put new processes in place, what has Tom done so far in his time there?

Yeah, good questions and to sum all of the above, I think he has brought high energy leadership to the group. He has brought great domain expertise. He has introduced some reseller partners, he has hired some sales leadership and made some organizational changes and in general done a lot of great work to energize the sales force. They are enthused by his leadership and his vision of the potential of our business coming from the -- where he came he understands the value of crowd managed networking and the rift between the legacy, controller based architecture and the cloud managed platform that our competitors are dealing with and the potential crossover of unified architecture to really succeed. Unidentified Analyst Okay, thank you.

Thank you. We will continue on to James Faucette with Morgan Stanley.

Hi, this is Eugene Anderson on for James. Just going to be E-rate and understanding the push out and spend, just trying to better understand why in Q1 it still nonetheless had bigger impact than you expected?

I think as we built our guidance for Q1 we understood that projects that we are dependent upon E-rate would not be transacted in the quarter and so we -- we perfected our guidance as we built that for Q1. But there was more kind of additional customers that decide to further their purchases. In Q1 even though we had anticipated and so I think just some more customers got aware of it, the more they realized the amount of money that was available the potential for them to get access towards the more during the quarter. People put the brakes on projects and deferred them to make them E-rate eligible after the April 1 deadline. And so I think that dynamic played out as the quarter went on which is what led to the result.

Great, and just as a second question I was wondering if there is, if you could give us sort of an update on sort of your percentage mix in terms of verticals. I know, if you can't give an exact percentage it is fine but is there -- were there any notable trends this quarter?

Well obviously K-12 was down. We gave kind of a fourth quarter average on the mix. K-12 has been averaging around 40% and as a fourth quarter average came down to below that driven by the challenges here in the U.S. We thought slight uptick overall in the retail and healthcare together has been averaging about 20%. We saw that move up more towards about 25% overall both due to the level of revenue and the impact from K-12.

Thanks so much.

Yes.

Thank you. [Operator Instructions]. We will go to Catharine Trebnick with Dougherty.

Oh, thank you for taking my question. One on retail and healthcare. do you split that out or are you just keeping that lumped together?

Yeah, for now we are keeping those together.

Okay, and would you say, in retail there seems to be pretty large swings for everyone, upgrading, where would you say retailers are in the process of upgrading their APs to .11 AC overall?

Yeah, so our experience with retailers is that they tend to be -- they are upgrading a lot to have more intelligent and connected shopping experience enabling their products to be doing tablet based engagement in the front of stores and many other benefit. They tend to actually be a more price sensitivity market and less aggressive adopter of .11AC. So, we actually see a higher take rate on low cost out of 11 and lot of the retail segments. I still there long-term potential for them to other upgrades to be driven by the AC transition in the future.

Alright, thank you. And then on I think we did E-rate enough I’ll circle back, one house keeping question, what was the OPEX guide for I miss that on the call?

We just go ahead and guide for an EPS number overall. So we don’t provide an actual OPEX guide in the period.

Okay, got it. And I have that. Thank you, gentlemen.

You bet.

We’ll go to Rohit Chopra with Buckingham.

Thank you, can you hear me.

Yes, loud and clear.

Okay, thanks. Alright, I’ll ask an E-rate question that Catherine didn’t ask is it based on some of the numbers you gave at the very beginning day, are you suggesting that E-rate or your named is closer to let’s say 56 million to 57 million is that what you are talking about and is that ex services that’s the first question?

The specifically the funds for learning report that we were pointing at that we were referring to does indicate that’s the dollar value of what they call access point antenna and LAN control Wi-Fi access points controllers will be included in that. There is other numbers for things like installation, configuration, training cabling are not included in that number. That’s more for the hardware and typically hardware and in many cases our cloud services are bundled in with our E-rate skews. The cloud service would be included in that there is some additional some minor amount of other revenue that they lump under what they call OS software but that’s the number that is indicative of our product category but that includes the bar that’s the bar sell price.

Okay, right and then I wanted to ask about discounting and competition. So discounting, I know Gordy you talked about that just international markets so that’s as you guys discounting or working with the distributor to discount in certain areas where you need to make a sale or what’s actually happening there on the discounting front and then maybe also just talk about competition is there been any change in the competitive landscape just this quarter or even post the announcement of HP Aruba any changes there?

Yes, this is Gordy I’ll go ahead and take the topic on the discounting. What we see since we deal with our distributors internationally many times they are bearing the burden of the currency change since we transact everything in U.S. dollars. So what we will see is the VATs come back to us for incremental discount to make up for the changes between when they quoted to an end customer or to a bar in the region and ultimately the pricing they are getting from us. So since we do bill in U.S. dollars that comes back to us as an incremental discount request we have seen that in and you know in Euro Australian dollar as well as the GDP. So, really in those areas where there has been a significant swing over the last six months and the strength of U.S. dollar.

And then on the competition?

Yes, on the competition side we really have not seen a material change in the competitive dynamic. I think we were other than people are chasing the E-rate business. There are a lot of people they were going after that. There were some promotions but in total our view is that the discounting around the E-rate business looks to be fairly consistent with traditional discounts and in the past and as we said we felt good about our competitive win rate on the 471, roughly 10% market share, so kind of pleased with the outcome.

Thanks Dave.

Thank you, and with no additional questions in the queue I would like to go ahead and turn the floor back over to Mr. David Flynn for any additional or closing remarks.

Thank you all for joining us today. And we look forward to reporting back on our progress and in the meantime meeting with you many of you on the road and conferences throughout the quarter. Thank you.

Thank you and again ladies and gentlemen that does conclude today’s conference. Thank you all again for your participation.